Prime Minister
Tony Abbott
said there are no imminent plans to finalise the location of Sydney’s second airport even though a proposal on a spending package of up to $250 million on roads near Badgerys Creek is expected to be put to cabinet next week.

“A decision must be made and it will be made by this government early in our first term but I do have to warn you that it’s not imminent," Mr Abbott said on Wednesday.

Government sources said if approved, the proposal to cabinet would not be considered a formal signal of intent to build the airport which would trigger negotiations – expected to last more than two years – over a first right of refusal with Sydney Airport.

This will be taken as a positive move by investors in Sydney Airport, most of whom expect the airport will, ultimately, exercise the right to develop Badgerys Creek, but will want to delay the construction of the new airport as long as possible.

“In our view, the longer the debate drags on without resolution, the better for Sydney Airport, and it continues to optimise the return from the existing asset,"
JPMorgan
analyst
Carolyn Holmes
said.

“If Sydney exercised its first right of refusal, in our view it may be dilutive to earnings and cash flow in the initial years following opening, hence where we stand today, the second airport is viewed as a medium to long-term risk for Sydney Airport and its cash flows."

However, Ms Holmes said she would, ultimately, prefer Sydney Airport to exercise its right to take a stake in the second airport.

Sydney Airport is still waiting on Infrastructure and Regional Development Minister
Warren Truss
to decide on its latest master plan, which would expand the capacity at Kingsford Smith by combining international and domestic operations in dual-use terminals.

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Decision looks due by February 19

The final version of the master plan was submitted in December and The Australian Financial Review believes a decision is due by February 19. It remains unclear whether the government will announce the approval of the master plan on the same day it selects Badgerys Creek as the site of a second Sydney airport.

Sydney Airport has the first right of refusal over development of any second airport within 100 kilometres of Sydney. Mr Truss indicated last year Badgerys Creek was likely to be a staged development and would not be restricted by a curfew.

Once a formal notice is given by the government to build the airport in the future, it will first launch a consultation with Sydney Airport about the need for a second airport and development preferences that will last between five and 12 months.

Then, Mr Truss can issue a “notice of intention" specifying the material terms of the government’s preferred development for the airport.

The notice of intention will include an option to develop and operate the second airport.

Sydney Airport will then have nine months to exercise the option.

If it is not exercised, the government can proceed with the development itself or with another operator, provided it enters into material contracts within two years. Alternatively, it can undertake more consultations with Sydney Airport.